Robinhood'' s Most significant Service More Than Tripled in the First Quarter
< img srcset=" https://images.wsj.net/im-332976?width=140&size=1.5 140w, https://images.wsj.net/im-332976?width=540&size=1.5 540w, https://images.wsj.net/im-332976?width=620&size=1.5 620w, https://images.wsj.net/im-332976?width=700&size=1.5 700w, https://images.wsj.net/im-332976?width=860&size=1.5 860w, https://images.wsj.net/im-332976?width=1260&size=1.5 1260w" sizes=" (max-width: 140px) 100px, (max-width: 540px) 500px, (max-width: 620px) 580px, (max-width: 700px) 660px, (max-width: 860px) 820px, 1260px "src= "https://images.wsj.net/im-332976?width=620&size=1.5" data-enlarge=" https://images.wsj.net/im-332976?width=1260&size=1.5" alt ="" title= "Countless amateur investors downloaded Robinhood's app in early
2021, attracted by the run-up …”/ >< figcaption class=" wsj-article-caption post __ inset __ image __ caption" itemprop=" caption" > Countless amateur investors downloaded Robinhood’s app in early 2021, drawn in by the run-up in meme stocks.< span class =" wsj-article-credit short article __ inset __ image __ caption __ credit "itemprop=" developer" > Picture: Gabby Jones/Bloomberg News By. Peter Rudegeair Close Peter Rudegeair May 2, 2021 1:12 pm ET The stock-trading mania of early 2021 raised profits at Robinhood Markets Inc. to brand-new heights. When its clients buy and sell stocks and alternatives, Robinhood paths those orders to high-speed traders, which pay the startup brokerage for the right to perform a lot of those trades. That service, referred to as payment for order circulation, generated about$ 331 million in income for Robinhood in the very first quarter, according to a securities filing late recently. That is more than triple the$ 91 million Robinhood brought in from payment for order circulation in the very first quarter of 2020. Countless amateur financiers downloaded Robinhood’s app in the first quarter, attracted by the run-up in meme stocks popular on Reddit’s WallStreetBets online forum. Such rapid development in users and revenue is most likely to attract potential financiers in Robinhood’s coming initial public offering, one of the most eagerly waited for listings of the year. The strength of its organization up till January triggered new and existing investors to pump a whopping $3.4 billion into the business just 3 months back.
Robinhood needed that capital infusion to keep supporting the Reddit-fueled market rally. After the clearinghouse that helped finish Robinhood’s trades asked it to post billions of dollars in extra collateral that it didn’t have on hand, Robinhood restricted users’ capability to purchase shares in GameStop Corp. and other highflying stocks at the end of January.
That choice generated scores of customer complaints, dozens of lawsuits against Robinhood and a social-media campaign to erase the app around the start of February. But those trends didn’t wind up denting Robinhood’s business. February profits from payments for order flow at Robinhood amounted to about $121 million, or almost 7% more than what it earned in January.
Robinhood has other sources of profits, consisting of a membership service called Robinhood Gold and fees it collects providing out consumer shares to short sellers, but payment for order flow is the largest. The practice has been controversial for many years, with critics arguing that it encourages brokerages to optimize their earnings at the cost of consumers.
Last year, Robinhood agreed to pay a $65 million settlement to the Securities and Exchange Commission for misguiding customers for years about its dependence on those deals. Robinhood didn’t admit wrongdoing.
In March, a SEC authorities informed legislators that the firm is considering whether it needed to review payment-for-order-flow arrangements.
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